Glossary of Terms

VA Loan

VA Loans are mortgages issued by private lenders, but partially guaranteed by the Department of Veterans Affairs. To be eligible to apply for a VA Loan one must meet one of the following criteria1:

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Vacancy Allowance

Vacancy allowance is a line item on a real estate pro forma that accounts for expected vacancy of the property. The specific allowance is dependant on the property type and

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Vacancy Rate

Vacancy rate is the percentage of all available units or space in a rental property that are vacant compared to the total supply of units or space at a particular time.

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Valuation, Cost Approach

Cost approach valuation is a real estate valuation method that bases a property’s market value off the cost it would take to build an equivalent structure. The cost approach takes into account the cost of land plus the cost of construction, less depreciation. Similar to its counterparts, the cost approach may have other forces that prove it inaccurate. For example, if vacant land is not available to compare against, the professional valuing the property will have to derive an estimate, making the end value less accurate.

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Valuation, Income Approach (Direct Capitalization)

Valuation, income approach (direct capitalization) is a real estate appraisal method that values a property by taking net operating income and dividing it by a predetermined capitalization rate. The income valuation method is not suitable for valuing owner-occupied residential properties, as it relies on income produced as a function of the property’s overall value. The income capitalization formula is as follows:

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Valuation, Sales Comparison

Sales comparison valuation is a real estate appraisal method that estimates a property’s value by comparing it against other properties with similar attributes that have been sold recently. This approach considers all of the individual features of a property, adjusting the value to reflect a sum of all the property’s features. A sales comparison approach may be used to evaluate both commercial and residential property.

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Value Add Property

Investment properties that need corrective action to fully realize their value. Value-add is a term given to describe one of the four major risk profiles of

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Volatility

The amount of uncertainty associated with the size of change in a security or market index’s value. In statistics, volatility is determined by the standard deviation or variance of returns for the same security or index. A higher volatility means that a security’s value is more unpredictable, typically carrying a greater amount of risk. A lower volatility means that the security’s value does not fluctuate as much, and tends to be more stable.

For example, say Security A has fluctuated in value from $50 to $120 three times this year, while Security B has fluctuated between $70 to $80 three times as well. Given that Security A has changed in value at a higher variance from its average during this time period, it is said to be more volatile, or more unpredictable.

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